Government Advocates Region Wise Merging of Public Sector Banks

Government is propagating New Idea for Merging the Public Sector Bank on each new day. This time they have floated the concept of region wise merging of Public Sector Banks (PSB). As Finance minister already intimated that they would start the consolidation and merging of Public Sector Bank without any waiting time or financial reform, the rumor of proposed merging banks are at high on social media.

This was well aware that earlier, the government shared a wish-list of potential mergers. It was believed that PNB could takeover Corporation Bank, United Bank of India, Dena Bank or Andhra Bank. This merger may count the regional imbalance because all these banks have regional presence and business.Therefore, it is believed that merger just by size or the acquisition of smaller banks by larger ones, may not lead to consolidation at all.

The major problem in the current scenario at Public sector banks are managing the human resources. Unless the merger process effectively deals with the issue of manpower resources in the PSU banking system, the merging or consolidation exercise is unlikely to produce the anticipated results. As the objective of merging the public sector banks are not only the higher NPA rather there is a growing and urgent need for a stronger banking system.

Bank union and regional presence of human resources has been the biggest hurdle for many bank mergers in the past and is likely to remain so, going forward. Existing regional approach concept ensures that the transfer of human capital is largely contained within the region. Which looks difficult at this moment as the merger requires the closure of many of the branches which are not generating the businesses.

All the public sector banks in India are having the huge deposits which is much depended on the regional approach. Merging avoiding this may hurt the forthcoming business of merger bank in longer run. This would also sought problem in addressing the Non performing assets in linger run.

Different Public Sector banks are having various presence in different states as like BOB, Central Bank of India and Dena Bank draw over 28 per cent of branch network from Chhattisgarh, Madhya Pradesh, Uttar Pradesh and Uttarakhand where as Canara bank and syndicate bank are having full presence in Karnatka and other southern states including western Uttar Pradesh.

If we go with the merger of above list of bank, there are chances that bulk of the businesses in the particular region will continue to be concentrated with the merged entity. This would help banks in better bargaining power and better room for negotiations with borrowers for the merged bank.

This would help banks in granting quality assets and better control on NPA. In current situation, in order to follow the business target achieved by larger banks, these smaller banks competing carelessly and prioritizing lending without exercising adequate caution, and this partly explains why many smaller banks are faced with higher NPA troubles compared to the larger ones as like Dena Bank, IOB, United Bank of India, IDBI Bank recently Indian Banks.